Prospects are not looking good for DA bill on state spending

Prospects for parliament adopting a DA proposal to impose a fiscal rule on government spending look dim.

There is not much time before parliament rises in about a month before the general election. The National Treasury has been working on its own fiscal anchor that is likely to hold greater sway with parliament’s finance committee than the DA’s bill. The governing party has rarely supported DA bills.

The medium-term budget policy statement states that the Treasury is “developing new fiscal anchors to ensure sustainable public finances … and an update will be provided in the 2024 budget”, which finance minister Enoch Godongwana will table on Wednesday.

The Financial Mail reported that several analysts expected the Treasury to announce a new fiscal anchor in the budget aimed at slowing the build-up of debt as a way to signal SA’s deep commitment to fiscal discipline and to tie the hands of the political economy after the election.

The Treasury did adopt a ceiling on noninterest expenditure in 2012, but this was not binding and budget deficits and debt continued to rise.

DA finance spokesperson Dion George stressed the importance of having a fiscal rule in place in the event of a coalition governing SA after the election. George gave a presentation to the finance committee on his Responsible Spending Bill, which aims to promote responsible spending by obligating SA to reduce its debt levels and its exposure to debt.

The proposed rule would tie the level of government current consumption expenditure to GDP growth so that if there is negative or no growth, this expenditure must not exceed that of the previous year.

“This approach is designed to ensure that increases in government spending do not exceed the economy’s ability to support such spending sustainably,”

George told MPs. He said the bill sets precise targets for net loan debt as a percentage of GDP and institutes specific fiscal actions for varying debt levels.

The proposed rule also covers freezes or decreases in public service compensation, excluding those covered by the occupation-specific dispensation, relative to the level of net loan debt.

The bill provides for regular review of the rules that must take place at least every four years and for the minister to ask parliament for an exemption from them. It also provides for reports to parliament on the implementation of the rule.

In his presentation, George noted that “government’s commitment to a redistributive policy framework has necessitated a significant increase in expenditure” with the result that the fiscal environment had deteriorated to a situation in which public debt was unsustainable, deficit spending was persistent and economic growth anaemic.